RHB Bank Singapore has maintained “neutral” on the plantation sector with “neutral” calls on all Singapore-listed planters under the analysts’ coverage namely Wilmar International F34 , Bumitama Agri P8Z , First Resources EB5 and Golden Agri-Resources E5H .
Analyst Hoe Lee Leng have also reviewed the environmental, social and governance (ESG) credentials of all the stocks under RHB’s coverage, finding that the regional sector’s overall ESG score has ticked up to 2.6 from 2.5 given the planters’ readiness in complying with the EUDR (EU Regulation on Deforestation-free Products).
On the back of rising costs, falling yields and little chance for landbank expansion, planters may need to diversify in order to boost their bottom lines. Hoe highlights that some planters have already diversified into other industries like property, fruit farming, glove manufacturing and dairy farming.
“In recent times, we have seen more ESG-friendly diversification like producing wood and fertiliser as well as using palm oil waste. However, other than ventures that take advantage of their landbank like land sales and property development, none of these have moved the needle in terms of earnings contributions.
“With landbank monetisation like data centres or renewable energy ventures like solar farms now being a feasible diversification, this may change going forward — if more planters opt to engage. We estimate profitability per hectare per year for solar is 26 times more than oil palm,” she adds.
Wilmar, for one, is already very diversified. However, this can also prove to be an earnings drag when one or more units are not performing, RHB notes.
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While RHB has kept the target prices for most of the planters unchanged, the analysts have trimmed Wilmar’s target price to $3.30 from $3.50 previously. This follows a reduction in its FY2025 earnings estimates by 11% after imputing RHB’s latest foreign exchange assumption and lowering its crushing margins forecast, given the still-slow recovery in China.
RHB’s target price includes a 4% ESG premium — although the analysts have seen improvements in Wilmar’s energy intensity and traceability, they note increases in its greenhouse gas (GHG) emissions and water intensity.
“Although valuation looks attractive versus its China-listed peers, we believe Wilmar will trade in line with regional valuations until earnings undergo a significant turnaround,” the analysts add.
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For Bumitama Agri, RHB is keeping its target price at 70 cents. Although the company may not be able to diversify its earnings much via downstream ventures, more can be done to improve its profit per hectare, the analysts note. Its ESG score stood at an unchanged 2.6 as there was a lack of notable ESG progress for FY2023.
First Resources’ ESG score has been raised to 2.7 from 2.5 previously as the analysts have seen improvements in its GHG intensity as well as progress made in certifications and traceability. The analysts are maintaining their target price at $1.45.
Lastly, the analysts have cut their ESG score for Golden Agri to 2.6 from 2.7 previously as they have seen increases in its GHG emissions as well as water and energy intensity. The target price for the company is kept at 26 cents.
As at 4.58pm, shares in Wilmar, Bumitama Agri, First Resources and Golden Agri are trading at $3.05, 71 cents, $1.40 and 26.5 cents respectively.
